Leverage trading is legal in the US as long as you trade with a broker that follows the necessary rules and regulations to ensure fairness and safety. These rules are set by two organizations: the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
- Leverage trading in forex in the US is regulated by the CFTC and NFA.
- Leverage trading in stocks, commodities, and indices in the US is regulated by the SEC and the CFTC.
Leverage trading laws and regulations in the US
Below is a list of the most important things you need to know:
- Only certain registered entities can be involved in leverage trading with retail clients (traders). These entities include U.S.-based financial institutions, registered Futures Commission Merchants (FCMs), and registered Retail Foreign Exchange Dealers (RFEDs).
- The registered entities have to follow specific rules and get approval from the National Futures Association (NFA).
- Companies or individuals that introduce customers to these registered entities must also register with the NFA.
- Companies operating investment funds that do margin-based trading legally in the us must also register.
- Customers must be given clear information about the risks involved in leverage trading, and their personal and financial information should be verified regularly.
- The registered entities need to have proper procedures for their communications with the public, to prevent fraud and misleading information.
- The registered entities have to supervise their business carefully, including making visits to their branch offices and making sure their employees are well-trained.
- If they use electronic trading systems, they must have clear procedures to keep everything secure, manage risk, and keep accurate records.
- They also need to follow certain trading standards, like making sure customer orders are executed before their own orders and following rules about pricing and other trading practices.
For typical brokers that are Forex Dealer Members (FDMs), these are the additional requirements:
- They need to have enough money to cover their obligations to customers and others.
- They have to report their financial status regularly to the NFA.
- They need to follow specific rules when trading with their own money.
- They must have a risk management program to monitor and handle different risks in their trading activities.
- There are rules for handling customer accounts and ensuring privacy and protection of customer information.
- They need to have a plan in place to keep their business running smoothly even during disasters.
- They have to review and confirm that they are following all NFA requirements.
These rules have been put in place to protect retail traders and the market itself. Anyone involved in legal trading in the USA must follow these rules to keep things fair and secure for everyone.
What about crypto?
You can trade crypto with leverage in the USA as long as you trade with a platform that is approved by the National Futures Association (NFA).
Crypto CFD leverage trading is outright banned in the US, hence, no CFD brokers are operating in the country at the moment.
Some us crypto leverage trading platforms have been approved by the NFA and some of them have even been registered as a Money Service Business (MSB) with FinCEN.
One crypto broker that is operating legally in the US is BYDFi which is headquartered in Singapore but has attained an MSB registration from FinCEN.
On BYDFi it is possible to trade crypto contracts with up to 200x multiplier.
These contracts are called perpetual futures contracts and allow for very low margin ratios to retail clients in the USA.
How much borrowed capital is allowed in the US?
Crypto trading generally involves trading on margin which is primarily offered by crypto margin trading exchanges.
Each state might have its own regulations towards cryptocurrency trading and they may or may not include restrictions.
According to the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) is 1:50 the allowed leverage is:
- For major currency pairs, the allowed ratio is 1:50
- For minor currency pairs, the allowed ratio is 1:20
- For other commodities, the allowed ratio is 1:10
Keep in mind that these limits have been put in place specifically for the foreign exchange markets and other rules may apply for other markets.
For example, leverage trading in crypto has a different set of limits when it comes to leveraged contracts.
The allowed known leverage for crypto in the USA is currently 1:200 which is offered by BYDFi.
BYDFi is currently located in Singapore but since they have registered as a Money Service Business in America and have also been approved by NFA.
FAQ
Several crypto exchanges offer margin trading in the US. BYDFi is an example of a crypto exchange that offers margin-traded products to US clients.
Futures trading is legal in the USA as long as the platform you trade with is approved by the NFA.
Binance is not operating in the US and does not allow US traders onto the platform. The US version of Binance does not offer margin-traded products.
No, US citizens are not allowed to use Binance Futures, instead, traders from the USA can trade futures on BYDFi which is approved by the NFA in the United States.
